[Congressional Record Volume 142, Number 85 (Tuesday, June 11, 1996)]
[Senate]
[Pages S6096-S6103]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCONNELL (for himself and Mr. Dole):
  S. 1861. A bill to provide for legal reform and consumer 
compensation, and for other purposes; to the Committee on the 
Judiciary.


         the legal reform and consumer compensation act of 1996

 Mr. McCONNELL. Mr. President, several weeks ago, I was 
disappointed, but not surprised, when the President vetoed the 
bipartisan product liability reform bill. The bill would have curbed 
runaway punitive damage awards--which the Supreme Court endorsed in its 
recent BMW versus Gore decision--and offered some protection to those 
needlessly dragged into lawsuits. The President, erroneously, in my 
view, charged that the product liability reform bill, offered too many 
benefits to business and unfairly burdened the injured.
  The President missed an opportunity to correct some of the defects in 
the legal system. The fact is the system is too costly and fails to 
provide prompt and fair relief to those who are injured. Less than half 
of every dollar spent on lawsuits goes to the injured.
  And, spiraling legal costs exact a toll on every American family and 
business owner in the form of higher insurance premiums and ever-
increasing costs for medical care. FBI Director Louis Freeh estimates 
that fraudulent medical claims arising out of phony car accidents cost 
every American household $200 a year.
  Moreover, economic growth is impeded when new American-made products, 
technology, medicines, and medical devices aren't brought to worldwide 
markets because of too many lawsuits.
  This mess-of-a-legal system can be turned around with reforms that 
will ensure those who are injured get fairly and quickly compensated 
without resort to expensive and protracted litigation. The two bills I 
am introducing today take aim at the unnecessary costs of personal 
injury lawsuits. The result will be more money in the hands of the 
injured more quickly, and a massive savings to American consumers.
  The Joint Economic Committee estimates that the Auto Choice Reform 
Act will save the driving public $40 billion annually in insurance 
costs. Savings would be progressive, resulting in savings to low-income 
drivers of about 45 percent on their insurance premiums.

[[Page S6097]]

  The Legal Reform and Consumer Compensation Act, designed to change 
the monopolistic and anticompetitive contingent fee system and to 
provide a rapid recovery mechanism for personal injury victims, would 
save more than $45 billion a year.
  These dramatic savings are achieved without capping punitive damages, 
or limiting the rights of victims. Rather, these bills expand consumer 
options. By adding a new type of auto insurance, new ways of paying 
victims fairly for their injuries, and breaking the contingent fee 
hold, Americans will be begin to be relieved of the litigation burden 
that threatens to strangle every family and burdens the overall 
economy.
  The changes proposed in these bills will require a major rethinking 
about the current zero-sum, adversarial legal system. Occasionally, the 
legal system rewards a persistent plaintiff with a windfall damage 
award--like the woman who won a multi-million-dollar verdict from 
McDonald's for spilling hot coffee on herself. But odds of winning in 
the legal system are about as good as hitting a jackpot in Las Vegas.

  The perverse incentive structure--the one-in-a-million chance of 
winning the lottery--discourages settlement and rewards a piling on of 
claims. If a jury will award an injured party 3 times his or her out-
of-pocket losses, then 10 trips to the doctor are better than 2. The 
Rand Corp., in a study released earlier this year, estimates that 
excess medical claiming connected with lawsuits consumed some $4 
billion of health care resources.
  But the fault for the runaway legal system does not lie exclusively 
with the injured and their lawyers. Defendants and their lawyers know 
that the multimillion-dollar jury award is a rare occurrence. Yet, most 
cases are fought as if every case results in $1 million verdict. Every 
dollar spent on defense buys delay and precludes early and reasonable 
resolution.
  In the meantime, every American pays the price--through higher car 
insurance premiums, spiraling medical bills, and soaring prices at the 
checkout counter. And the economy suffers from slow growth and through 
products, inventions, and technologies withheld from the world's 
markets because of the cost of lawsuits. It's time we cut the tort tax 
and give every American relief from the costly legal system.
  I am pleased that Senator Dole is joining this effort. His 
sponsorship of this ambitious effort to overhaul the legal system will 
probably be one of his last legislative initiatives. I am honored to 
have his support.
  I ask unanimous consent that a copy of the two bills and a summary of 
the bills be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S.1860

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Auto Choice Reform Act of 
     1996''.

     SEC. 2. FINDINGS.

       The Congress finds that--
       (1) the costs of operating a motor vehicle are excessive 
     due to the legal and administrative costs associated with the 
     processing of claims under the tort system;
       (2) the costly fault and liability insurance system often 
     fails to provide compensation commensurate with loss, takes 
     too long to pay benefits and wastes too many dollars on legal 
     fees;
       (3) the distorted incentives of the tort system for motor 
     vehicles produce--
       (A) significant fraud in the claiming process, thereby 
     dangerously exacerbating the national distrust felt by many 
     Americans toward the legal process in general and the rule of 
     law itself;
       (B) significant wasteful, fraudulent, and costly overuse 
     and abuse of scarce health care resources and services, 
     thereby increasing the problems of affordability and 
     accessibility in the health care system;
       (C) significant and unbearable cost burdens on low-income 
     Americans, which impose on them the Hobson's choice of 
     driving on an unlawful, uninsured basis or compelling them to 
     forego essential needs;
       (D) significant reductions in access to, and purchases of, 
     motor vehicles, thereby damaging the economic well-being of 
     many low-income Americans, while also unnecessarily harming a 
     critical component of the American economy;
       (E) significant deterioration of the economic well-being of 
     most major American cities through the imposition of a 
     massive, differentially greater ``tort tax'' on urban 
     residents, thereby contributing to the abandonment of cities 
     by many American taxpayers able to achieve substantial after-
     tax savings on automobile insurance premiums by the sole act 
     of moving to adjacent suburban communities; and
       (F) significant inability to achieve market-based discounts 
     in insurance rates for owners of safer cars, thereby 
     powerfully contributing to the lesser safety of American 
     drivers and passengers;
       (4) a system that allows consumers the opportunity to self-
     insure and separates economic and non-economic damages for 
     the purpose of purchasing insurance would provide enormous 
     cost savings to drivers;
       (5) consumer choice in selection of motor vehicle insurance 
     would be greatly enhanced if each consumer could decide upon 
     the form of insurance that best suits the individual needs of 
     the consumer;
       (6) insurance to indemnify individuals for personal injury 
     arising from motor vehicle collisions is frequently 
     unavailable at reasonable cost because of the potential for 
     third-party claims;
       (7) a system enabling individuals to select the form of 
     motor vehicle insurance coverage that best suits individual 
     needs would enhance individual freedom and reduce the costs 
     of motor vehicle insurance for consumers; and
       (8) a system which targets and emphasizes the scourge of 
     those who drive under the influence of drugs or alcohol will 
     further deter such dangerous and unlawful conduct.

     SEC. 3. PURPOSE.

       The purpose of this Act is to authorize consumers of motor 
     vehicle insurance to choose between their present tort 
     remedies under State law and a system which combines first-
     party insurance and the right to sue negligent drivers for 
     all further uncompensated economic losses.

     SEC. 4. DEFINITIONS.

       For the purposes of this Act, the term--
       (1) ``accident'' means unforeseen or unplanned event 
     causing loss or injury;
       (2) ``economic loss'' means any objectively verifiable 
     pecuniary loss resulting from the harm suffered, including 
     past and future medical expenses, loss of past and future 
     earnings, burial costs, costs of repair, or replacement costs 
     of replacement services in the home, including child care, 
     transportation, food preparation, and household care, costs 
     of making reasonable accommodations to a personal residence, 
     loss of employment, and loss of business or employment 
     opportunities, to the extent recovery for such losses is 
     allowed under applicable State law;
       (3) ``financial responsibility law'' means a statute 
     (including one requiring compulsory coverage) penalizing 
     motorists for failing to carry defined limits of tort 
     liability insurance covering motor vehicle accidents;
       (4) ``insurer'' includes a person who is self-insured 
     within the meaning of applicable State law;
       (5) ``intentional misconduct'' means conduct whereby harm 
     is intentionally caused or attempted to be caused by one who 
     acts or fails to act for the purpose of causing harm or with 
     knowledge that harm is substantially certain to follow when 
     such conduct caused or substantially contributed to the harm 
     claimed for, except a person does not intentionally cause or 
     attempt to cause harm--
       (A) merely because his or her act or failure to act is done 
     with the realization that it creates a grave risk of causing 
     harm; or
       (B) if the act or omission causing bodily harm is for the 
     purpose of averting bodily harm to oneself or another person;
       (6) ``motor vehicle'' means a vehicle of any kind required 
     to be registered under the provisions of the applicable State 
     law relating to motor vehicles;
       (7) ``net economic loss''--
       (A) means economic loss, including when payable based on 
     fault, a reasonable attorney's fee calculated on the basis of 
     the value of the attorney's efforts as reflected in payment 
     to the attorney's client; and
       (B) excludes amounts paid or payable under--
       (i) Federal, State, or private disability or sickness 
     programs;
       (ii) Federal, State, or private health insurance programs;
       (iii) employer wage continuation programs;
       (iv) workers' compensation or similar occupational 
     compensation acts; and
       (v) any other source of payment intended to compensate such 
     individual for injuries resulting from a motor vehicle 
     accident, including amounts paid under personal protection 
     insurance or tort maintenance coverage;
       (8) ``no-fault motor vehicle law'' means a statute under 
     which those injured in motor vehicle accidents are paid 
     without regard to fault for their pecuniary losses as a 
     result of personal injury, in return for which claims based 
     on fault including for nonpecuniary losses, are to a defined 
     extent limited;
       (9) ``noneconomic loss'' means subjective, nonmonetary 
     losses including pain, suffering, inconvenience, mental 
     suffering, emotion distress, loss of society and 
     companionship, loss of consortium, hedonic damages, injury to 
     reputation, and humiliation;
       (10) ``person'' means any individual, corporation, company, 
     association, firm, partnership, society, joint stock company, 
     or any other entity (including any governmental entity);
       (11) ``personal protection'' means an insurance contract 
     payable without regard to

[[Page S6098]]

     fault for net economic loss due to personal injury resulting 
     from a motor vehicle accident, along with waiver of tort 
     claims pursuant to this Act;
       (12) ``replacement service loss'' means expenses reasonably 
     incurred in obtaining ordinary and necessary services from 
     others, not members of the injured person's household, in 
     lieu of the services the injured person would have performed 
     for the benefit of the household;
       (13) ``resident relative or dependent'' means a person 
     related to the owner of a motor vehicle by blood, marriage, 
     adoption, or otherwise (including a dependent receiving 
     financial services or support from such owner), and residing 
     in the same household at the time of accidental personal 
     injury, and a person resides in the same household if he or 
     she usually makes his or her home in the same family unit, 
     even though temporarily living elsewhere;
       (14) ``serious bodily injury'' means bodily injury which 
     results in death, dismemberment, significant and permanent 
     loss of an important bodily function, or significant and 
     permanent scarring or disfigurement;
       (15) ``State'' means any State of the United States, the 
     District of Columbia, the Commonwealth of Puerto Rico, Guam, 
     the Virgin Islands, American Samoa, the Northern Mariana 
     Islands, the Trust Territories of the Pacific Islands, and 
     any other territory or possession of the United States;
       (16) ``tort liability'' means the legal obligation for 
     payment of damages caused by one adjudged to have committed a 
     tort;
       (17) ``tort liability insurance'' means insurance by the 
     terms of which an insurer agrees to pay, on behalf of an 
     insured, damages the latter is obligated to pay a third 
     person because of his or her liability to that third person;
       (18) ``tort maintenance coverage'' means coverage under 
     which a tort liability insured, when involved in an accident 
     with a personal protection insured, retains his or her right 
     to claim for personal injury under State law without 
     modification by any provision of this Act, except that 
     responsibility for payment for any such claim is assumed by 
     his or her own insurer to the extent of such coverage under 
     section 5(b)(1); and
       (19) ``uninsured motorist'' means the owner of a motor 
     vehicle, including his or her resident relatives, uninsured 
     for either personal protection or tort liability insurance at 
     the limits prescribed by the applicable State's financial 
     responsibility law or higher under section 5(a)(2)(A).

     SEC. 5. MOTOR VEHICLE PERSONAL PROTECTION INSURANCE.

       (a) Insurance Policy Provisions.--(1) An insurance policy 
     that includes provisions that entitle the insured to receive, 
     without regard to fault or lack of fault, the insured's net 
     economic losses caused by an injury along with an express, 
     specific waiver of tort rights as provided in the insurance 
     policy shall be valid notwithstanding any contrary provisions 
     of State law.
       (2) In order for a personal protection insurance policy to 
     be covered by this Act, a motor vehicle insurance policy 
     issued by an insurer shall, at a minimum--
       (A) provide personal protection coverage of the greater 
     of--
       (i) up to the minimum limits of liability insurance for 
     personal injury under the State's financial responsibility 
     law; or
       (ii) in a State covered by a no-fault motor vehicle 
     insurance law, up to the minimum level of insurance required 
     for no-fault benefits; and
       (B) contain provisions under the State's financial 
     responsibility law, including those related to liability for 
     property damage, except to the extent State law would bar 
     contractual provisions giving effect to personal protection 
     authorizations set forth in this Act, or to the extent that 
     State law would be contrary to other provisions of this Act.
       (3) A personal protection insurer is authorized to contract 
     to pay personal protection benefits periodically as losses 
     accrue. Unless the treatment or expenses related thereto are 
     in reasonable dispute, an insurer who does not pay a claim 
     for net economic loss covered by a personal protection 
     insurance under this Act within 30 days after payment is due, 
     shall pay the loss compounded at a rate of 50 percent per 
     annum, as liquidated damages and in lieu of any penalty or 
     exemplary damages.
       (b) Operation of the Right To Choose.--(1) Under this Act, 
     in lieu of buying traditional tort liability insurance for 
     personal injury to protect third parties, motorists have the 
     right to choose personal protection which will be available 
     to themselves and their family members in the event of a 
     motor vehicle accident, including the amount of financial 
     protection they deem appropriate and affordable for 
     themselves and such others. As an alternative, motorists have 
     the right to elect traditional tort liability coverage for 
     personal injury at the minimum limits (or higher) under the 
     State's financial responsibility law.
       (2)(A) A motorist who chooses traditional tort liability 
     has automatically included in such coverage tort maintenance 
     coverage at least at the equivalent of the minimum levels of 
     insurance under the higher of--
       (i) the State's financial responsibility law for personal 
     injury; or
       (ii) the State's no-fault motor vehicle law, if applicable.
       (B) A motorist described under subparagraph (A) who is 
     involved in an accident with another motorist remains subject 
     to tort law for personal injury except that, based on fault, 
     such motorist--
       (i) may be claimed against by those covered by personal 
     protection insurance or tort maintenance coverage only for 
     net economic loss; and
       (ii) may not claim against those covered by personal 
     protection insurance or tort maintenance coverage except for 
     net economic loss.
       (C)(i) With respect to a claim under subparagraph (B)(ii), 
     a deduction is made against the recovery equal to the limits 
     of tort maintenance coverage applicable to the economic loss 
     of the claimant.
       (ii) One-half of any amount paid under tort maintenance 
     coverage referred to under clause (i) shall be deemed payable 
     for economic loss.
       (3) A motorist who chooses personal protection coverage and 
     who is involved in an accident with another such motorist is 
     compensated under his or her own policy for net economic loss 
     only without regard to fault. But if the motorist sustains 
     net economic loss in excess of his or her policy's benefit 
     levels, that person retains the right to claim and sue for 
     net economic loss based on fault.
       (4) If a motorist who has chosen personal protection 
     coverage is involved in an accident with an uninsured 
     motorist, the personal protection insured is compensated for 
     net economic loss without regard to fault according to the 
     terms of his or her personal protection policy, and has the 
     right to claim against the uninsured motorist for net 
     economic loss based on fault. The uninsured motorist forfeits 
     the right to claim for noneconomic loss against the motorist 
     who has chosen the personal protection policy.
       (5)(A) A motorist who chooses either personal protection 
     insurance or tort liability insurance also binds by such 
     choice his or her resident relatives, provided that--
       (i) an adult resident relative shall not be bound without 
     his or her consent, which, in the absence of express consent, 
     shall be implied when the relative is present in a motor 
     vehicle operated by the motorist; and
       (ii) insurers are authorized to specify reasonable terms 
     and conditions governing the commencement, duration, and 
     application of the chosen coverage depending on the number of 
     motor vehicles and owners thereof in a household.
       (B) In order to minimize conflict between the two options 
     under subparagraph (A), insurers are authorized to maintain 
     underwriting rules that encourage uniformity within a 
     household.
       (6) A personal protection insured retains the right to 
     claim, and remains subject to a claim, for driving under the 
     influence of alcohol or illegal drugs, both as defined by 
     State law, or for intentional misconduct.
       (7) A personal protection insured claims personal 
     protection benefits in the following priority:
       (A) The personal protection of an employer if the person 
     injured is an employee of the employer and the accident 
     occurs while the employee is acting within the scope of the 
     employee's employment.
       (B) The personal protection under which the injured person 
     is or was an insured.
       (C) The personal protection covering a motor vehicle 
     involved in the accident, if the person injured was an 
     occupant or was struck by such motor vehicle at the time of 
     the accident.
       (8) A personal protection insurer is authorized to write 
     personal protection coverage--
       (A) without any deductible or subject to a reasonable 
     deductible not to exceed $1,000; and
       (B) with an exclusion of coverage for persons driving under 
     the influence of alcohol or illegal drugs.
       (9) A personal protection insurer is subrogated, to the 
     extent of its obligations, to all of the rights of its 
     personal protection insured with respect to an accident 
     caused in whole or in part, as determined by applicable State 
     law, by the negligence of an uninsured motorist or driving 
     under the influence of alcohol or illegal drugs, or caused in 
     whole or in part by intentional misconduct or any person who 
     is not affected by the limitations on tort rights and 
     liabilities under this Act.
       (10) Any person lawfully uninsured under the terms of State 
     law for either personal protection or tort liability 
     insurance retains his or her tort rights in a form unaffected 
     by this Act.
       (c) Renewal or Cancellation.--An insurer shall not cancel, 
     fail to renew, or increase the premium of its insured solely 
     on account of the insured or any other injured person making 
     a claim for personal protection benefits or, where there is 
     no basis for ascribing fault to the insured or one for whom 
     the insured is vicariously liable, for tort maintenance 
     coverage.
       (d) Immunity.--No insurer or any agent or employee of such 
     insurer, no insurance producer representing a motor vehicle 
     insurer or any automobile residual market plan, and no 
     attorney licensed to practice law within this State shall be 
     liable in an action for damages on account of an election of 
     the tort liability option, an election of the personal 
     protection option, or a failure to make a required election, 
     unless such person has willfully misrepresented the available 
     choices or has fraudulently induced the election of one 
     system over the other.
       (e) Rule of Construction.--Nothing in this Act shall be 
     construed--
       (1) to waive or affect any defense of sovereign immunity 
     asserted by any State under any law or by the United States;
       (2) to preempt State choice-of-law rules with respect to 
     claims brought by a foreign nation or a citizen of a foreign 
     nation;

[[Page S6099]]

       (3) to affect the right of any court to transfer venue, to 
     apply the law of a foreign nation, or to dismiss a claim of a 
     foreign nation or of a citizen of a foreign nation on the 
     ground of inconvenient forum;
       (4) subject to paragraph (1), to create or vest 
     jurisdiction in the district courts of the United States over 
     any motor vehicle accident liability or damages action 
     subject to this Act which is not otherwise properly in the 
     United States District Court;
       (5) to prevent insurers and insureds from contracting to 
     limit recovery for lost wages and income under personal 
     protection coverage such that only 60 percent or more of lost 
     wages or income is covered, or to offset death benefits under 
     personal protection coverage by amounts paid for lost wages 
     and replacement service losses;
       (6) to prevent an insurer from contracting with personal 
     protection insureds, as permitted by State law, to have 
     submitted to arbitration any dispute with respect to payment 
     of personal protection benefits;
       (7) to relieve a motorist of the obligations imposed by 
     State law to purchase tort liability insurance for personal 
     injury to protect third parties who are not affected by the 
     immunities of subsection (b); and
       (8) to preclude a State from enacting, for all motor 
     vehicle accident cases including cases covered by this Act, a 
     minimum dollar value for defined classes of cases involving 
     death or serious bodily injury.

     SEC. 6. APPLICABILITY TO STATES; CHOICE OF LAW; JURISDICTION; 
                   AND CONSTRUCTION.

       (a) Election of Nonapplicability by States.--This Act shall 
     not apply in a State if such State enacts a statute that--
       (1) cites the authority of this subsection; and
       (2) declares the election of such State that this Act shall 
     not apply.
       (b) Nonapplicability to State by State Finding.--(1) This 
     Act shall not apply in a State, if--
       (A) the State official charged with jurisdiction over 
     insurance rates for motor vehicles makes a finding that the 
     statewide average motor vehicle premiums in effect 
     immediately before the effective date of this Act for 
     personal injury will not be reduced by an average of at least 
     30 percent for persons choosing personal protection coverage 
     in lieu of traditional tort liability pursuant to this Act 
     (without including any cost for uninsured or underinsured or 
     medical payments coverages);
       (B) the finding described under subparagraph (A) is 
     supported by evidence adduced in public hearing and 
     reviewable under the State's administrative procedure law; 
     and
       (C) the finding described under subparagraph (A) and any 
     review of such finding described under subparagraph (B) 
     occurs no later than 60 days after the date of the enactment 
     of this Act.
       (2) Premiums for personal injury referred to under 
     paragraph (1)(A) include premiums for--
       (A) personal injury liability, uninsured and underinsured 
     motorists' liability, and medical payments coverage; and
       (B) if applicable--
       (i) no fault benefits under no fault motor vehicle law; or
       (ii) similar benefits under a law not limiting claims based 
     on fault for nonpecuniary losses.
       (c) Choice of Law.--In disputes between citizens of States 
     that elect nonapplicability under subsection (a) and citizens 
     of States that do not so elect, ordinary choice of law 
     principles shall apply.
       (d) Jurisdiction.--This section shall not confer 
     jurisdiction on the district courts of the United States 
     under section 1331 or 1337 or title 28, United States Code.
       (e) Construction.--Nothing in this Act shall alter or 
     diminish the authority or obligation of the Federal courts to 
     construe the terms of this Act.

     SEC. 7. EFFECTIVE DATE.

       This Act shall take effect 60 days after the date of the 
     enactment of this Act.
                                                                    ____


                                S. 1861

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Legal Reform and Consumer 
     Compensation Act of 1996''.

     SEC. 2. TABLE OF CONTENTS.

       The table of contents for this Act is as follows:

Sec. 1. Short title.
Sec. 2. Table of contents.
Sec. 3. Findings.

                TITLE I--EARLY OFFER AND RAPID RECOVERY

Sec. 101. Early offer and rapid recovery mechanisms.

                    TITLE II--FAIRNESS IN LEGAL FEES

Sec. 201. Findings and purpose.
Sec. 202. Definitions.
Sec. 203. Creation of a fiduciary relationship.
Sec. 204. Written hourly rate fee agreement.
Sec. 205. Nature of demand for compensation.
Sec. 206. Time limit for, and requisite contents of, response setting 
              forth settlement offer.
Sec. 207. Consequences of failure to include prescribed material with 
              settlement offer.
Sec. 208. No obligation to issue response; inadmissibility of demands, 
              responses, and failure to respond.
Sec. 209. Effect of pre-demand settlement offer.
Sec. 210. Pre-retention offer.
Sec. 211. Post-retention offer when a pre-retention offer has been 
              made.
Sec. 212. Post-retention offer when no pre-retention offer has been 
              made.
Sec. 213. Calculation of attorney's fee when there is a subsequent 
              resolution of the claim.
Sec. 214. Provision of closing statement.
Sec. 215. Effect of contravening agreements.
Sec. 216. Inapplicability.

           TITLE III--APPLICABILITY AND RULE OF CONSTRUCTION

Sec. 301. Applicability to States; choice of law; jurisdiction; and 
              construction.
Sec. 302. Effective date.

     SEC. 3. FINDINGS.

       The Congress finds that--
       (1) the current liability system is, all too often, a 
     frustrating experience for many personal injury claimants, 
     resulting in a time-consuming process which provides 
     inadequate compensation for their injuries;
       (2) for other personal injury claimants, the system can 
     provide a windfall of financial gain, greatly in excess of 
     their actual losses;
       (3) the unpredictable and erratic system is a product of a 
     perverse incentive structure in which the magnitude of 
     noneconomic damages is directly linked to, and is a multiple 
     of, the out-of-pocket expenses incurred by the claimant;
       (4) the incentives of the litigation system perpetuate the 
     overuse and abuse of the medical system, costing the economy 
     billions of dollars and costing every United States family 
     hundreds of dollars in unnecessary insurance premiums and 
     health care expenses;
       (5) the system as it has recently developed--
       (A) is highly regressive;
       (B) is often duplicative of and inconsistent with Federal 
     regulatory and social welfare programs for the protection of 
     injured parties;
       (C) is burdened by an administrative cost structure that 
     causes a disproportionate amount of its dollars to go to 
     lawyers rather than to injured parties;
       (D) is particularly prejudicial to the competitive position 
     of the American small business community;
       (E) is a major and increasing threat to the economic 
     viability of American cities;
       (F) imposes a major burden on the American economy and if 
     reformed would significantly enhance American productivity 
     and consumer wealth;
       (G) is replete with incentives that reward abusive claiming 
     and defensive behavior; and
       (H) is therefore a major cause of the dangerous disesteem 
     increasingly felt by increasing numbers of Americans toward 
     the legal system and, indeed, the rule of law itself; and
       (6) there is a need for a system of early offer, rapid 
     recovery and consumer choice to enable claimants to be made 
     whole and recover all economic losses without resort to 
     complex and protracted litigation.
                TITLE I--EARLY OFFER AND RAPID RECOVERY

     SEC. 101. EARLY OFFER AND RAPID RECOVERY MECHANISMS.

       (a) Purpose.--The purpose of this title is to establish a 
     system of early offer and rapid recovery to permit personal 
     injury claimants to recover their economic losses from a 
     responsible party in a timely manner.
       (b) In General.--Chapter 111 of title 28, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 1660. Early offer and rapid recovery mechanisms

       ``(a) For purposes of this section:
       ``(1) The term `allegedly responsible party' means a 
     person, partnership, or corporation, and an insurer thereof, 
     alleged by the claimant to be responsible for at least some 
     portion of an injury alleged by a claimant.
       ``(2) The term `claimant' means an individual who, in his 
     or her own right, or vicariously as otherwise permitted by 
     law, is seeking compensation for personal injury.
       ``(3) The term `clear and convincing evidence' means that 
     measure or degree of proof that will produce in the mind of 
     the trier of fact a firm belief or conviction as to the truth 
     of the allegations sought to be established. The level of 
     proof required to satisfy such standard shall be more than 
     that required under preponderance of the evidence, and less 
     than that required for proof beyond a reasonable doubt.
       ``(4) The term `collateral benefits' means all benefits and 
     advantages received or entitled to be received (regardless of 
     the right of recoupment of any other entity, through 
     subrogation, trust agreement, lien, or otherwise) by an 
     injured individual (or other entity) as reimbursement of loss 
     because of personal injury--
       ``(A) payable or required to be paid by--
       ``(i) Federal, State, or other governmental disability, 
     unemployment, or sickness programs;
       ``(ii) under the terms of any Federal, State, or other 
     governmental or private health insurance, accident insurance, 
     wage or salary continuation plan, or disability income 
     insurance; or
       ``(iii) any other program or compensation system, if the 
     payment is intended to compensate the claimant for the same 
     injury or disability which is the subject of the claim; minus

[[Page S6100]]

       ``(B) the amount paid by such individual (or by the spouse, 
     parent, child, or legal guardian of such individual) to 
     secure the payments described in subparagraph (A).
       ``(5) The term `economic loss' means any objectively 
     verifiable pecuniary loss resulting from the harm suffered, 
     including past and future medical expenses, loss of past and 
     future earnings, burial costs, property damage accompanying 
     bodily injury, costs of replacement services in the home, 
     including child care, transportation, food preparation, and 
     household care, costs of making reasonable accommodations to 
     a personal residence, loss of employment, and loss of 
     business or employment opportunities, to the extent recovery 
     for such losses is allowed under applicable State law.
       ``(6) The term `entity' includes an individual or person.
       ``(7) The term `intentional misconduct' means conduct 
     whereby harm is intentionally caused or attempted to be 
     caused by one who acts or fails to act for the purpose of 
     causing harm or with knowledge that harm is substantially 
     certain to follow when such conduct caused or substantially 
     contributed to the harm claimed for, except a person does not 
     intentionally cause or attempt to cause harm--
       ``(A) merely because his or her act or failure to act is 
     intentional or done with the realization that it creates a 
     risk of harm; or
       ``(B) if the act or omission causing bodily harm is for the 
     purpose of averting bodily harm to oneself or another person.
       ``(8) The term `liability claim' means a demand for 
     compensation by certified mail to an allegedly responsible 
     party, which shall set forth the material facts relevant to 
     the claim including--
       ``(A) the name, address, age, marital status, and 
     occupation of claimant, which term for the purposes of this 
     section includes the injured party if claimant is operating 
     in a representative capacity;
       ``(B) a brief description of how the injury occurred;
       ``(C) the names, and, if known, the addresses, telephone 
     numbers, and occupations of all known witnesses to the 
     injury;
       ``(D) copies of photographs in claimant's possession that 
     relate to the injury;
       ``(E) the basis for claiming that the party to whom the 
     claim is addressed is at least partially responsible for 
     causing the injury;
       ``(F) a description of the nature of the injury, the names 
     and addresses of all physicians, other health care providers, 
     and hospitals, clinics, or other medical service entities 
     that provided medical care to the claimant or the injured 
     party including the date and nature of the service;
       ``(G) a copy of the medical records relating to the injury 
     and those involving a prior injury or preexisting medical 
     condition which an allegedly responsible party would be able 
     to introduce into evidence in a trial or, in lieu of either 
     or both, executed releases authorizing the allegedly 
     responsible party to obtain such records directly from health 
     care providers that produced or possess them; and
       ``(H) relevant documents, including records of earnings if 
     a claimant is self-employed and employer records of earnings 
     if a claimant is employed, and any medical expenses, wages 
     lost, or other pertinent damages suffered as a consequence of 
     the injury.
       ``(9) The term `noneconomic loss' means nonmonetary losses 
     including punitive damage claims and further including 
     without being limited to pain, suffering, inconvenience, 
     mental suffering, emotional distress, loss of society and 
     companionship, loss of consortium, hedonic damages, injury to 
     reputation, and humiliation.
       ``(10) The term `punitive damages' means damages awarded 
     against any person or entity to punish such persons or entity 
     or to deter such person or entity, or others, from engaging 
     in similar behavior in the future.
       ``(11) The term `reasonable attorney's fee' means an hourly 
     fee for services rendered subsequent to the execution of a 
     written agreement establishing an attorney-client 
     relationship that bears a reasonable relation to the 
     attorney's actual efforts on the client's behalf. Fees shall 
     not be deemed reasonable to the extent that services provided 
     by an attorney are attributable to any failure to provide 
     reasonably prompt notice pursuant to subsection 
     (b)(1)(A)(ii).
       ``(12) The term `serious bodily injury' means bodily injury 
     which results in death, dismemberment, significant and 
     permanent loss of an important bodily function, or 
     significant and permanent scarring or disfigurement.
       ``(13) The term `wanton misconduct' means conduct that the 
     allegedly responsible party realized was excessively 
     dangerous, done heedlessly and recklessly, and with a 
     conscious disregard of the consequences to or rights and 
     safety of the claimant.
       ``(b)(1)(A) After an occurrence that may give rise to a 
     civil action or claim against any person, in any Federal or 
     State court based on any cause of action to recover damages 
     for personal injury, any potentially allegedly responsible 
     party has the option to offer, not later than the later of--
       ``(i) 120 days after the injury; or
       ``(ii) 120 days after the initiation of the liability 
     claim,
     to compensate a claimant for reasonable economic loss, 
     including future economic loss, less collateral benefits, and 
     including a reasonable attorney's fee for the claimant.
       ``(B) If within 30 days of receipt of a liability claim an 
     allegedly responsible party notifies an unrepresented 
     claimant or a claimant's attorney of a request for a medical 
     examination of the claimant, and the claimant is not made 
     available for such examination within 10 days of receipt of 
     the request, the time provided by this section for issuing a 
     response is extended by 1 day for each day that the request 
     is not honored after the expiration of 10 days from the date 
     of the request. Any such extension shall also include a 
     further period of 10 days from the date of the completion of 
     the medical examination.
       ``(C) The claimant may extend the time for receiving the 
     offer specified in subparagraph (A).
       ``(2) States may establish for all cases, including cases 
     covered by this title, a minimum dollar value for defined 
     classes involving death or serious bodily injury. A claimant 
     shall have the option of accepting such minimum dollar value 
     payable in lump sum, or accepting the benefit specified in 
     paragraph (1)(A).
       ``(c) An offer under subsection (b) may include other 
     allegedly responsible parties, individuals, or entities that 
     were involved in the events which gave rise to the civil 
     action, regardless of the theory of liability on which the 
     claim is based, upon their request or consent.
       ``(d) Future economic losses shall be payable to an 
     individual under this section as such losses occur.
       ``(e) If, after an offer is made under subsection (b), the 
     participants in the offer dispute their relative 
     contributions to the payments to be made to the individual, 
     such disputes shall be resolved through binding arbitration 
     in accordance with applicable rules and procedures 
     established by the Attorney General of the United States.
       ``(f)(1) The claimant may reject an offer of compensation 
     made under subsection (b) and elect to bring or maintain a 
     civil action. Upon rejection of the offer, the claimant may 
     recover economic loss, including future economic loss, less 
     collateral benefits. The amount of collateral benefits shall 
     be determined by the court in a pretrial proceeding. In any 
     subsequent proceeding in the action, no evidence shall be 
     admitted as to the amount of economic loss for which 
     collateral benefits have been paid to, or will be paid to, 
     the claimant. The claimant may recover for noneconomic loss 
     to the extent authorized by other applicable law only if the 
     claimant proves each element of the claim for noneconomic 
     loss by clear and convincing evidence, that the allegedly 
     responsible party caused the injury by intentional or wanton 
     misconduct.
       ``(2) A notice of such a rejection is required to be made 
     not later than 90 days after the date on which the offer of 
     compensation benefits is made. A failure to accept the offer 
     within the 90-day period is deemed a rejection.
       ``(g) Rejected offers may not be disclosed in any 
     subsequent action brought by the claimant.
       ``(h) Nothing in this section shall be construed to--
       ``(1) waive or affect any defense of sovereign immunity 
     asserted by any State under any law;
       ``(2) waive or affect any defense of sovereign immunity 
     asserted by the United States;
       ``(3) affect the applicability of any provision of chapter 
     97;
       ``(4) preempt State choice-of-law rules with respect to 
     claims brought by a foreign nation or a citizen of a foreign 
     nation;
       ``(5) affect the right of any court to transfer venue or to 
     apply the law of a foreign nation or to dismiss a claim of a 
     foreign nation or of a citizen of a foreign nation on the 
     ground of inconvenient forum;
       ``(6) affect any applicable statute of limitations of any 
     State or of the United States, except as expressly provided 
     in this title; or
       ``(7) impair any right of a provider of collateral benefits 
     to seek reimbursement outside of the claimant's cause of 
     action where permitted by State law, other than by a lien on 
     the recovery of the claimant.
       ``(i)(1) This section shall not apply to accidental bodily 
     injury caused by the operation or the use of a motor vehicle 
     in claims in which an uninsured motorist or a personal 
     protection insured is involved.
       ``(2) For purposes of this subsection the term `operation 
     or use'--
       ``(A) means operation or use of a motor vehicle as a motor 
     vehicle, including, incident to its operation or use as a 
     vehicle, the occupation of the vehicle;
       ``(B) does not cover conduct within the course of a 
     business of manufacturing, selling, or maintaining a motor 
     vehicle, including repairing, servicing, washing, loading, or 
     unloading; and
       ``(C) does not include such conduct not within the course 
     of such a business unless such conduct occurs while occupying 
     a motor vehicle.''.
       (c) Technical and Conforming Amendments.--The table of 
     sections for chapter 111 of title 28, United States Code, is 
     amended by adding at the end the following new item:

``1660. Early offer and rapid recovery mechanisms.''.
                    TITLE II--FAIRNESS IN LEGAL FEES

     SEC. 201. FINDINGS AND PURPOSE.

       (a) Findings.--The Congress finds that contingency fees 
     play a useful and often critical role in ensuring access to 
     counsel and the courts on the part of those who would 
     otherwise be unable to afford such access, but that--
       (1) personal injury claimants are often subjected to 
     unnecessary costs, delays, and inefficiencies in processing 
     their compensation claims;

[[Page S6101]]

       (2) virtually all such claimants who are represented by 
     attorneys are charged contingent fees;
       (3) the ethical and legal validity of a contingent fee is 
     dependent upon an attorney undertaking risk in exchange for 
     sharing proportionately in the proceeds of a claim;
       (4) the perverse incentives of the existing system often 
     encourage and reward defendants who take intransigent 
     settlement positions and otherwise unethically add to the 
     costs and delays of settling meritorious claims for, among 
     other reasons, the purpose of reducing the marginal rates of 
     compensation received by claimants' counsel;
       (5) many deserving claimants receive inequitable 
     compensation because--
       (A) such claimants are required to pay attorneys 
     approximately one-third or more of any recovery even when 
     there is little or no issue of liability or damages and 
     therefore little or no assumption of risk by the attorney; 
     and
       (B) when a defendant or its insurer has made a substantial 
     settlement offer before the attorney's retention or shortly 
     thereafter and the attorney has added little or nothing to 
     the value of the claim to that point, payment of a 
     substantial contingent fee is nonetheless generally required;
       (6) the current compensation system often fails to provide 
     sufficient financial incentives to effectuate prompt and 
     adequate compensation to deserving claimants, resulting in--
       (A) delays in adjudications and case settlements often 
     caused by intransigent defendant conduct that the present 
     system perversely rewards and thereby deprives claimants of 
     prompt compensation;
       (B) a substantial burden on Federal and State courts 
     contributing to very high case backlogs; and
       (C) regressive cost burdens and substantial avoidable costs 
     imposed on all parties resulting from the long delays in 
     resolving many claims;
       (7) the current tort compensation system which results in 
     delays in resolving claims and which effectively provides for 
     increased noneconomic damages and, therefore, increased legal 
     fees as medical care costs increase, provides perverse 
     financial incentives for both more intensive and unnecessary 
     use of medical care providers and the fraudulent incurrence 
     of medical care expenses, thereby adding materially to the 
     Nation's health care costs and burdens;
       (8) delays in resolving claims often result in more 
     intensive and unnecessary use of medical care providers, 
     thereby adding to the Nation's health care burden;
       (9) the claims process gives rise to substantial, avoidable 
     transaction costs because of the lack of adequate incentives 
     for defendants and their insurers to offer prompt and 
     equitable settlements to meritorious claimants and because 
     claimants' attorneys exact a significant share of any 
     settlement even when their efforts do not generate or augment 
     the settlement offer;
       (10) contingency fee practices, as described in the 
     preceding paragraphs, expose a clear and impermissible gap 
     between (A) the ethical standards established and promulgated 
     by courts and professed by the Bar, and (B) the actual 
     practices of the Bar;
       (11) contingency fee practices, as described in the 
     preceding paragraphs, bring substantial disrepute to the Bar 
     and to the legal system as a whole and loss of confidence in 
     the rule of law itself, not the least because they create and 
     expose broad gaps between the stated ethical principles of 
     the legal profession and its real world practices;
       (12) the inability of the Bar and the courts to curb 
     contingency fee abuses has led to higher settlement costs, 
     lowered compensation to injured persons, excessive medical 
     care costs and delayed claims processing; and
       (13) there is a need for adopting a procedure to implement 
     appropriate ethical and legal standards and to resolve 
     personal injury claims more fairly and promptly.
       (b) Purposes.--The purposes of this title are to--
       (1) enforce more efficiently and effectively ethical 
     standards governing the reasonableness of lawyers' fees and 
     correspondingly to implement the stricter scrutiny that 
     courts are obliged to apply to contingent fees;
       (2) reverse systemic incentives now in effect so as to 
     reward, and not to penalize, defendants who make substantial 
     early settlement offers;
       (3) compensate claimants' attorneys more rationally by 
     calculating their compensation in relation to the value of 
     services rendered and risks undertaken;
       (4) compensate more fairly those seeking redress for 
     injuries by giving them a larger share of promptly achieved 
     settlements;
       (5) further enhance the likelihood of early settlement of 
     claims by preserving a larger share of early settlement 
     offers for claimants;
       (6) lower the costs of the personal injury tort 
     compensation system including unnecessary medical and defense 
     costs;
       (7) remove the burdens on interstate commerce and the 
     Nation's health care programs that are imposed by the current 
     tort compensation system;
       (8) create a simple, self-enforcing system, controlled by 
     the parties, which forms an early basis for establishing the 
     sums and issues that are in dispute;
       (9) reduce unworkable burdens now placed on courts and bar 
     grievance boards presently charged with enforcing ethical 
     standards through ex post facto, case-by-case fact finding 
     processes that pose difficult burdens of proof and impose 
     disproportionate transaction costs on both parties and fact 
     finders; and
       (10) provide alternatives to across-the-board fee cap 
     reforms, which often provide defendants with unearned 
     advantages and further encourage many defendants in unethical 
     protraction of settlement of meritorious claims.

     SEC. 202. DEFINITIONS.

       For purposes of this title:
       (1) The term ``allegedly responsible party'' means a 
     person, partnership, corporation, and an insurer thereof, 
     alleged by a claimant to be responsible for at least some 
     portion of a personal injury alleged by claimant.
       (2) The term ``claim'' means an assertion of entitlement to 
     compensation for personal injury from an allegedly 
     responsible party and, to the extent subject to a contingent 
     fee agreement, to all other related claims arising from such 
     injury.
       (3) The term ``claimant'' means an individual who, in his 
     or her own right, or vicariously as otherwise permitted by 
     law, is seeking compensation for personal injury.
       (4) The term ``contingent fee'' means the fee negotiated in 
     a contingent fee agreement that is payable in fact or in 
     effect only from the proceeds of any recovery on behalf of 
     claimant.
       (5) The term ``contingent fee agreement'' means a fee 
     agreement between an attorney and claimant wherein the 
     attorney agrees to bear the risk of no or inadequate 
     compensation in exchange for a proportionate share of any 
     recovery by settlement or verdict obtained for claimant.
       (6) The term ``contingent fee attorney'' means an attorney 
     who agrees to represent claimant in exchange for a contingent 
     fee.
       (7) The term ``fixed fee'' means an agreement between an 
     attorney and claimant whereby the attorney agrees to perform 
     a specific legal task in exchange for a specified sum to be 
     paid by claimant.
       (8) The term ``hourly rate fee'' means the fee generated by 
     an agreement, or otherwise by operation of law, between an 
     attorney and claimant providing that claimant pay the 
     attorney a fee determined by multiplying the hourly rate 
     negotiated, or otherwise set by law, between the attorney and 
     claimant, by the number of hours that the attorney has worked 
     on behalf of claimant in furtherance of claimant's interest. 
     An hourly rate fee may also be a contingent fee to the extent 
     it is only payable in fact or in effect from the proceeds of 
     any recovery on behalf of claimant.
       (9) The term ``injury'' means personal injury.
       (10) The term ``personal injury'' means an occurrence 
     resulting from any act giving rise to a tort claim, 
     including, without limitation, bodily injury, sickness, 
     disease, death, or property damage accompanying bodily 
     injury.
       (11) The term ``post-retention offer'' means an offer of 
     settlement in response to a demand for compensation made 
     within the time constraints, and conforming to the provisions 
     of this title, made to a claimant who is represented by a 
     contingent fee attorney.
       (12) The term ``pre-retention offer'' means an offer to 
     settle a claim for compensation made to a claimant not 
     represented by an attorney at the time of the offer.
       (13) The term ``response'' means a written communication by 
     claimant or an allegedly responsible party or the attorney 
     for either, deposited into the United States mail and sent 
     certified mail or delivered by an overnight delivery service.
       (14) The term ``settlement offer'' means a written offer of 
     settlement set forth in a response within the time limits set 
     forth in this title.

     SEC. 203. CREATION OF A FIDUCIARY RELATIONSHIP.

       For purposes of this title, a fiduciary relationship 
     commences when a claimant consults a contingent fee attorney 
     to seek professional services.

     SEC. 204. WRITTEN HOURLY RATE FEE AGREEMENT.

       Contingent fee agreements for the representation of parties 
     with claims shall also include alternate hourly rate fees. If 
     a contingent fee attorney has not entered into a written 
     agreement with claimant at the time of retention setting 
     forth the attorney's hourly rate, then a reasonable hourly 
     rate is payable, subject to the limitations set forth in this 
     title.

     SEC. 205. NATURE OF DEMAND FOR COMPENSATION.

       (a) In General.--At any time after retention, a contingent 
     fee attorney pursuing a claim shall send a demand for 
     compensation by certified mail to an allegedly responsible 
     party, which shall set forth the material facts relevant to 
     the claim including--
       (1) the name, address, age, marital status, and occupation 
     of claimant, which term for the purposes of this title 
     includes the injured party if claimant is operating in a 
     representative capacity;
       (2) a brief description of how the injury occurred;
       (3) the names, and, if known, the addresses, telephone 
     numbers, and occupations of all known witnesses to the 
     injury;
       (4) copies of photographs in claimant's possession that 
     relate to the injury;
       (5) the basis for claiming that the party to whom the claim 
     is addressed is at least partially responsible for causing 
     the injury;

[[Page S6102]]

       (6) a description of the nature of the injury, the names 
     and addresses of all physicians, other health care providers, 
     and hospitals, clinics, or other medical service entities 
     that provide medical care to claimant or the injured party 
     including the date and nature of the service;
       (7) medical records relating to the injury and those 
     involving a prior injury or pre-existing medical condition 
     which an allegedly responsible party would be able to 
     introduce into evidence in a trial or, in lieu of either or 
     both, executed releases authorizing the allegedly responsible 
     party to obtain such records directly from health care 
     providers that produced or possess them; and
       (8) relevant documentation, including records of earnings 
     if a claimant is self-employed and employer records of 
     earnings if a claimant is employed, or any medical expenses, 
     wages lost, or other pertinent damages suffered as a 
     consequence of the injury.
       (b) Mailing of Copies.--At the time of the mailing of the 
     demand for compensation, a claimant's attorney shall mail 
     copies of each such demand to the claimant and to every other 
     allegedly responsible party.
       (c) Limitation on Fee.--A fee received by or contracted for 
     by a contingent fee attorney that exceeds 10 percent of any 
     settlement or judgment received by his or her client after 
     reasonable expenses have been deducted is unreasonable and 
     excessive if the attorney has sent a timely demand for 
     compensation but has omitted information of a material nature 
     that is required by this section which he or she had in his 
     or her possession or which was readily available to him or 
     her at the time of filing.

     SEC. 206. TIME LIMIT FOR, AND REQUISITE CONTENTS OF, RESPONSE 
                   SETTING FORTH SETTLEMENT OFFER.

       (a) Post-Retention Offer.--To qualify its response as a 
     post-retention offer under this title, an allegedly 
     responsible party shall--
       (1) issue a response stating a settlement offer within 60 
     days from receipt of a demand for compensation;
       (2) send the response to claimant's attorney with a copy to 
     claimant;
       (3) state that the offer is open for acceptance for a 
     minimum of 30 days from the time of its receipt by claimant's 
     attorney and further state whether it expires at the end of 
     this period or remains open for acceptance for a longer 
     period or until notice of withdrawal is given; and
       (4) include with the offer copies of materials in its or 
     its attorney's possession concerning the alleged injury upon 
     which the allegedly responsible party relied in making the 
     settlement offer except material that such party or its 
     attorney believes in good faith would not be discoverable by 
     claimant during the course of litigation.
     If reproduction costs under paragraph (4) would be 
     significant relative to the size of the offer, the allegedly 
     responsible party may, in the alternative, offer other forms 
     of access to the materials convenient and at reasonable cost 
     to claimant's attorney.
       (b) Time Limitations.--If within 30 days of receipt of a 
     claimant's demand for compensation an allegedly responsible 
     party notifies an unrepresented claimant or a claimant's 
     attorney that it seeks to have a medical examination of 
     claimant, and claimant is not made available for such 
     examination within 10 days of receipt of the request, the 
     time herein provided for issuing a response is extended by 1 
     day for each day that the request is not honored after the 
     expiration of 10 days from the date of the request. Any such 
     extension also includes a further period of 10 days from the 
     date of the completion of the medical examination.
       (c) Increase in Offer.--The settlement offer may be 
     increased during the 60-day period set forth in subsection 
     (a)(1) by issuing an additional offer stating that the time 
     for acceptance is 10 days after receipt of the additional 
     offer by claimant's attorney or 30 days from receipt of the 
     initial response, whichever is longer, unless the additional 
     response specifies a longer period of time for acceptance as 
     set forth in subsection (a)(3).

     SEC. 207. CONSEQUENCES OF FAILURE TO INCLUDE PRESCRIBED 
                   MATERIAL WITH SETTLEMENT OFFER.

       (a) In General.--If an allegedly responsible party or its 
     attorney willfully fails to include the material required by 
     section 206(a)(4) with a response stating a settlement offer 
     or does not otherwise make such material available--
       (1) a claimant may revoke its acceptance of such settlement 
     offer within 2 years of having accepted it; and
       (2) any fees and costs reasonably incurred by a claimant in 
     revoking its acceptance of such settlement offer and 
     reinstating its claim is recoverable from the allegedly 
     responsible party, including the losses suffered by a 
     claimant who is precluded from reinstating its claim by 
     operation of a statute of limitations.
       (b) Sanctions for Party.--Willful failure of an allegedly 
     responsible party to comply with section 206(a)(4) shall 
     subject such party to the sanctions applicable to a party who 
     fails to comply with requests for the production of 
     documents.
       (c) Sanctions for Attorney.--Willful failure of an attorney 
     for an allegedly responsible party to comply with section 
     206(a)(4) shall subject that attorney to the same sanctions 
     applicable to attorneys who improperly counsel their clients 
     not to produce documents for which there has been a discovery 
     request.

     SEC. 208. NO OBLIGATION TO ISSUE RESPONSE; INADMISSIBILITY OF 
                   DEMANDS, RESPONSES, AND FAILURE TO RESPOND.

       (a) No Obligation To Respond.--Nothing in this title 
     imposes on an allegedly responsible party an obligation to 
     issue a response to a demand for compensation.
       (b) Inadmissibility of Offer.--Demands for compensation, 
     early settlement offers, or the failure of an allegedly 
     responsible party to issue same, are inadmissible in any 
     subsequent litigation, proceeding, or arbitration, to the 
     extent that evidence of settlement negotiations is 
     inadmissible in the jurisdiction where the case is brought.

     SEC. 209. EFFECT OF PRE-DEMAND SETTLEMENT OFFER.

       A settlement offer to an injured party represented by a 
     contingent fee counsel made before receipt of a demand for 
     compensation, which is open for acceptance for 60 days or 
     more from the time of its receipt and which conforms to the 
     requirements of section 206, is deemed a post-retention offer 
     and has the same effect under this title as if it were a 
     response to a demand for compensation.

     SEC. 210. PRE-RETENTION OFFER.

       (a) Prohibition of Percentage Fee of Pre-Retention Offer.--
     It is a violation of this title for an attorney retained 
     after claimant has received a pre-retention offer to enter 
     into an agreement with claimant to receive a contingent fee 
     based upon or payable from the proceeds of the pre-retention 
     offer, provided that the pre-retention offer remains in 
     effect or is renewed until the time has elapsed for issuing a 
     response containing a settlement offer as defined under 
     section 206.
       (b) Unreasonable and Excessive Fee.--An attorney entering 
     into a fee agreement that would effectively result in payment 
     of a percentage of a pre-retention offer to a claimant has 
     charged an unreasonable and excessive fee.
       (c) Presumptive Reasonable Fee.--An attorney who contracts 
     with a claimant for a reasonable hourly rate or a reasonable 
     fixed fee, or who is paid such a fee for advising claimant 
     regarding the fairness of the pre-retention offer, has 
     charged a presumptively reasonable fee.

     SEC. 211. POST-RETENTION OFFER WHEN A PRE-RETENTION OFFER HAS 
                   BEEN MADE.

       (a) Reasonable Fee Based on Hourly Fee.--A fee paid or 
     contracted to be paid to a contingent fee attorney by a 
     claimant who has rejected a pre-retention offer and who later 
     accepts a post-retention offer of a greater amount is an 
     unreasonable and excessive fee unless it is an hourly rate 
     fee that does not exceed 25 percent of the excess of the 
     post-retention offer over the pre-retention offer.
       (b) Reasonable Fee Based on Percentage.--If the accepted 
     post-retention offer is less than the pre-retention offer, a 
     total fee for all services rendered that is greater than 10 
     percent of the first $100,000 of the post-retention offer 
     plus 5 percent of any amount that exceeds $100,000 after all 
     reasonable expenses have been deducted is an unreasonable and 
     excessive fee.

     SEC. 212. POST-RETENTION OFFER WHEN NO PRE-RETENTION OFFER 
                   HAS BEEN MADE.

       A fee paid or contracted to be paid to a contingent fee 
     attorney by a claimant who has not received a pre-retention 
     offer and who has accepted a post-retention offer is an 
     unreasonable and excessive fee unless it is an hourly rate 
     fee that does not exceed 10 percent of the first $100,000 of 
     the offer plus 5 percent of any amount that exceeds $100,000 
     after all reasonable expenses have been deducted.

     SEC. 213. CALCULATION OF ATTORNEY'S FEE WHEN THERE IS A 
                   SUBSEQUENT RESOLUTION OF THE CLAIM.

       Irrespective of any pre-retention offer, the provisions of 
     section 212 regarding maximum allowable fees remain in effect 
     if a post-retention offer is not accepted by claimant within 
     the time provided by this title. Contingent fees are 
     unreasonable and excessive unless charged against the 
     difference between an unaccepted post-retention offer and the 
     judgment or settlement ultimately obtained by claimant. When 
     such judgment or settlement is lower than the unaccepted 
     offer, the fee limitations of section 212 apply against the 
     judgment or settlement.

     SEC. 214. PROVISION OF CLOSING STATEMENT.

       Upon receipt of any settlement or judgment, and prior to 
     disbursement thereof, a contingent fee attorney shall provide 
     claimant with a written statement detailing how the proceeds 
     are to be distributed, including the amount of the expenses 
     paid out or to be paid out of the proceeds, the amount of the 
     fee, how the fee amount is calculated, and the amount due 
     claimant.

     SEC. 215. EFFECT OF CONTRAVENING AGREEMENTS.

       (a) Violation.--A contingent fee attorney who charges a fee 
     that contravenes this title has charged an unreasonable and 
     excessive fee.
       (b) Excessive and Unreasonable Fees.--If the fee violates 
     subsection (a), then it is also excessive and unreasonable to 
     the extent that it has not been reduced by any reasonable 
     fees and costs incurred by claimant in establishing that the 
     fee agreement contravened this title.
       (c) Unenforceable Fee Agreements.--Fee agreements between 
     claimants and contingent fee attorneys who have charged fees 
     defined under this title as unreasonable or excessive are 
     illegal and unenforceable except to the extent provided in 
     this title.

     SEC. 216. INAPPLICABILITY.

       (a) Evaluations and Collections.--Except for the provisions 
     of section 203, nothing in

[[Page S6103]]

     this title applies to an agreement between a claimant and an 
     attorney to retain the attorney--
       (1) on an hourly rate fee or fixed fee basis solely to 
     evaluate a pre-retention offer; or
       (2) to collect overdue amounts from an accepted pre-
     retention or post-retention settlement offer.
       (b) Agreements in Which Certain Offers Not Made.--The 
     provisions of this title prohibiting the charging of 
     contingency fees in the absence of assuming meaningful risk 
     and defining reasonable and unreasonable fees, shall have no 
     effect on contingent fee agreements in cases in which neither 
     a pre-retention nor a post-retention offer of settlement is 
     made.
       (c) Motor Vehicle Accidental Bodily Injury.--(1) This title 
     shall not apply to accidental bodily injury caused by the 
     operation or the use of a motor vehicle in claims in which an 
     uninsured motorist or personal protection insured is 
     involved.
       (2) For purposes of this subsection the term ``operation or 
     use''--
       (A) means operation or use of a motor vehicle as a motor 
     vehicle, including, incident to its operation or use as a 
     vehicle, the occupation of the vehicle;
       (B) does not cover conduct within the course of a business 
     of manufacturing, selling, or maintaining a motor vehicle, 
     including repairing, servicing, washing, loading, or 
     unloading; and
       (C) does not include such conduct not within the course of 
     such a business unless such conduct occurs while occupying a 
     motor vehicle.
           TITLE III--APPLICABILITY AND RULE OF CONSTRUCTION

     SEC. 301. APPLICABILITY TO STATES; CHOICE OF LAW; 
                   JURISDICTION; AND CONSTRUCTION.

       (a) Applicability to States.--Title I or II of this Act 
     shall not apply in a State if such State enacts a statute 
     that--
       (1) cites the authority of this subsection; and
       (2) declares the election of such State that the title 
     shall not apply.
       (b) Choice of Law.--In disputes between citizens of States 
     that elect nonapplicability under subsection (a) and citizens 
     of States that do not so elect, ordinary choice of law 
     principles shall apply.
       (c) Jurisdiction.--This section shall not confer 
     jurisdiction on the district courts of the United States 
     under section 1331 or 1337 or title 28, United States Code.
       (d) Construction.--Nothing in this Act shall alter or 
     diminish the authority or obligation of the Federal courts to 
     construe the terms of this Act.

     SEC. 302. EFFECTIVE DATE.

       This Act shall take effect on the date of enactment of this 
     Act.
                                                                    ____


            Summary of Dole-McConnell Legal Reform Proposals


                    1. ``Choice'' in Auto Insurance

       The principal feature of this proposal is the unbundling of 
     economic losses and non-economic (``pain & suffering'') 
     losses and enabling individuals to self-insure for non-
     economic losses.
       Without changing substantive state law of negligence, the 
     proposal would offer drivers two choices for motor vehicle 
     insurance:
       a. Traditional tort coverage--the injured collects against 
     his/her own policy for economic and non-economic losses, upon 
     a showing that another party was at fault, pursuant to 
     relevant state law. If the injured's economic losses exceed 
     his/her policy limits, the injured will be able to sue the 
     negligent party for those remaining losses and to collect a 
     reasonable attorney's fee; or
       b. Personal Injury Protection--the injured collects against 
     his/her policy for economic losses, regardless of fault. As 
     in the traditional tort coverage, if the injured's economic 
     loses exceed his/her policy limits, the injured will be able 
     to sue the negligent party for remaining economic losses, 
     including a reasonable attorney's fee.
       In all cases of intentional injury or injury that occurs as 
     a result of drug or alcohol use, the injured retains the 
     ability to sue for both economic and non-economic losses in 
     accordance with applicable state law.
       The Joint Economic Committee estimates that this proposal 
     will save consumers $40 billion annually in reduced premiums 
     for automobile insurance.


                        2. Contingent Fee Reform

       This provision limits traditional contingent fee 
     arrangements in order to ensure that more of the proceeds of 
     a settlement or award will more often go to the insured 
     party.
       First, an attorney would be required to offer all clients 
     an hourly rate and an hourly rate is presumed, if the 
     attorney does not have a specific contingent fee agreement.
       Where an injured party hires a lawyer to evaluate a 
     settlement offer (pre-retention offer), the attorney is 
     prohibited from receiving a percentage of the offer. The 
     attorney may collect an hourly fee or a fixed fee.
       In a case where an injured party retains a lawyer to engage 
     in settlement negotiations on his behalf, and the injured 
     party accepts a settlement offer, the lawyer is restricted to 
     a fee of 10% of the first $100,000 and 5% of amounts above 
     $10,000, after all reasonable expenses have been deducted.
       If the settlement offer is not accepted and the case goes 
     to trial, the lawyer may take a contingent only out of that 
     portion of the award which exceeds the settlement offer. If 
     the judgment is lower than the settlement offer, then the 
     lawyer's fee is limited to the 10%/5% formula above.


                     3. early offer/rapid recovery

       This provision, originally sponsored a decade ago by 
     Congressmen Richard Gephardt and Henson Moore, will encourage 
     an injured individual to receive an offer of full 
     compensation for economic losses, including future losses, 
     without a lawsuit. In order to encourage this offer, an 
     injured individual will be required, in making a claim 
     against the allegedly responsible party, to provide all 
     relevant information, including medical records. The 
     allegedly responsible party will have 120 days to provide 
     such economic compensation (the time may be extended by the 
     claimant), and the allegedly responsible party can verify the 
     information, including requesting the injured to get a 
     medical examination.
       The claimant retains the right to reject such early offer 
     and may sue to recover all losses. However, noneconomic 
     losses, including any punitive damages may only be recovered 
     if the injured party proves, by clear and convincing 
     evidence, that the injury was caused intentionally or by 
     wanton misconduct.
       In the event of more than one responsible party, relative 
     fault and proportionate contribution will be assessed by an 
     arbitrator.
       And, the states can establish a minimum payment for serious 
     bodily injury (for example, a loss of a limb which may not 
     result in significant economic losses) that will have to be 
     paid to the injured party under early offer.
       To satisfy the federalism concerns raised by some, the bill 
     will allow states to ``opt out'' of any of these 
     provisions.
                                 ______